Primary sex determination is the decision by which the bipotential embryonic gonad commits to either the testicular or ovarian fate. The developing gonad constitutes a unique paradigm for the study of lineage specification, cell fate commitment and the exploration of how distinct cell populations diverge from multipotent progenitors. After the separation of the adreno-gonadal primordium into two distinct primordia, somatic progenitor cells of the gonadal primordium undergo several cell fate decisions and sex-specific cell differentiation. The specification of the supporting and steroidogenic cell lineages into either Sertoli and Leydig cells in the testis, or granulosa and theca cells in the ovary is essential for germ cell development and endocrine function of the gonads. In this review, we focus on the early events leading to gonad formation, including the identity of gonadal progenitors, the genetic networks involved in cell lineage specification, the mutual antagonism of the pro-testis and pro-ovary networks and the importance of timing of developmental events orchestrating testis and ovary development. We discuss, and put into perspective, a number of experiments performed in mice or humans that have shed light on sex-determining mechanisms and, where possible, the clinical significance and limitations of such model organism data.